The European Central Bank could restore normal funding lines for Greek banks by October, Executive Board member Benoit Coeure said.
Greek lenders have relied on Emergency Liquidity Assistance from their own central bank since February, when the new government’s rejection of bailout terms prompted the ECB to remove a waiver allowing low-quality sovereign debt to be used as collateral. After a six-month standoff with its creditors, Greece is now on the verge of a new bailout deal tied to reforms, which is scheduled to be reviewed in October.
“We could potentially act earlier,” Coeure said in an interview with Germany’s Boersen-Zeitung published on the ECB’s website on Friday. “Greece’s new program contains a large number of ‘prior actions.’ The question for the Governing Council will be whether these preliminary measures are sufficient to meet our criteria.”
Coeure, who has represented the ECB in international negotiations on Greece’s debt crisis, said the decision-making Governing Council has not yet discussed the waiver. The council’s next scheduled policy meeting is for Sept. 3 in Frankfurt.
Coeure also said Greek banks should be recapitalized as soon as possible under the new aid program, which includes as much as 25 billion euros ($28 billion) for the purpose, though only after the financial institutions are checked. The ECB’s bank supervisors have started a new asset quality review and stress test for Greece’s four major banks.
“Those credit institutions were adequately capitalized , but they are now operating in an extremely difficult economic environment, and non-performing loans are likely to increase in the next few years,” he said. “The banking supervisors will need a few weeks to conclude their assessment. For that reason, the recapitalization should not take place immediately. But it should happen before the end of the year.”